Mobility Matters: What's in Your Digital Wallet?

Credit unions find themselves squeezed in a painful middle edging into 2013 as financial services vendors on the one side – from Visa to Google – try to create a stampede into digital wallets but, on the other side, consumers seem indifferent and retailers, for their part, delay doing much of anything.

So what's a credit union to do?

Experts are thick with counsel designed to help institutions make wise decisions.

Here is a fact: the day will come when the mobile phone emerges as a primary payments vehicle, displacing much of the volume that presently is carried by plastic cards. The reasons: many of us now say we’d rather leave home without our wallet than without our phone. And smartphones are, as the name suggests, smart. They can be location-aware delivery tools for offers and rewards this consumer wants right now. Plastic can’t match those benefits.

Two more facts: both of the obvious digital wallet strategies for credit unions have pluses ... and minuses.

Do nothing – wait for the silicon dust to settle – is an option but the problem is that inaction feeds into the already thick perception among younger consumers that credit unions lag in the technology they crave. (That perception has been documented by researcher Neil Goldman.) Big institutions are unlikely to hang back from digital wallets and suggestions are that many will take the plunge in 2013.

Do something, however, and that too entails risks – risks of aligning with the “wrong” wallet for instance. Another worry was pointed to by Kathy Herziger-Snider, a vice president at Rancho Cucamonga, Calif., CUSO CO-OP Financial Services: “Some wallet providers may be seeking to disintermediate the member from the credit union.” Use XYZ wallet and does the consumer think XYZ ... or his or her credit union? Over time, if the loyalty shifts to XYZ that spells bad news for the credit union, suggested Herziger-Snider.

She also cautioned that CO-OP believes that although most digital wallets now are free for institutions to jump into, “We believe that may change. We are telling our members to be aware there may be fees.”

Google, in that vein, has decisively pronounced that its Wallet will be free to participating institutions – “We are not another mouth to feed,” said Osama Bedier, a Google vice president. Other wallet providers are less emphatic in their commitment, thus CO-OP’s yellow flag.

The current lay of the digital wallet land shows untilled turf. Research from Aite indicates that only 10% of credit unions currently have a digital wallet. Thirty-two percent don’t offer it but classify it as a high priority. Fifty-eight percent don’t have it and tab it a low priority.

Bottom line: credit union executives are right to feel indecisive about digital wallets because it is a vast, fast-moving field. Perficient's financial services expert, Mike Panzarella, told me he had counted “123 digital wallets, everything from Starbucks to Google Wallet.” That’s a blizzard of payments products the likes of which hasn’t been seen in 30 years, since the early days of plastic cards when seemingly every storefront wanted its own.

That multiplicity has a predictable upshot: “There’s confusion on the consumer side,” said Brian Day, a payments expert with Des Moines, Iowa-based CUSO The Members Group.

But changes are brewing. Many experts believe 2013 will bring an avalanche of consumer-facing advertising promoting wallets – V.me may lead this charge, they predict, and Google and PayPal may not lag behind – and if a coolness factor wraps itself around digital wallets they will vault into must have status, at least among early adopters.

Mobile banking has taken off much faster than did online banking and, suggested the experts, the same velocity may propel digital wallets into many more hands in 2013.

More wallet-ready phones are hitting the market, and at least one tablet is Google Wallet ready. The big Isis mobile wallet pilot – powered by AT&T, Verizon and T-Mobile – is on the ground in Salt Lake City and Austin, Texas. Awareness is growing, as is usage.

Nobody is predicting that digital wallets will be mainstream in 2013 – “The market will stay dynamic; it’s still shaking out in 2013,” said Day. But this also is a land rush that may not reward delay.

“We get a sense that credit unions are feeling anxiety,” said CO-OP’s Herziger-Snyder. “We do see credit unions that think they have to have a wallet.”

What’s a credit union to do? Atlanta mobility expert David Eads advised financial institutions to use 2013 to learn all they can about digital wallets. Affiliate with several, he suggested – “There will be more than one winner, just as there is more than one credit card.”

Use the pilots to learn what works, what your members want, and where the credit union can add value, urged Eads. “You have to reach your members where they are.”